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US stock futures rose on Thursday after investors digested the results of the Federal Reserve meeting and remarks from its new chairman, Kevin Warsh, which prompted markets to reassess their expectations for the future course of monetary policy. The gains followed a volatile session on Wednesday, in which the US central bank kept interest rates unchanged in a range of 3.5% to 3.75%, a decision that was in line with market expectations.
The Fed held interest rates steady, but the messages were mixed.
Although the decision to hold interest rates steady was unsurprising, attention turned to Kevin Warsh’s first meeting since taking over as chairman of the Federal Reserve. In a notable move, Warsh refrained from offering his personal forecast for the future path of interest rates, prompting investors to focus on the official statement and the projections of central bank members to understand its future direction.
The so-called “Dot Plot,” which reflects monetary policymakers’ expectations for future interest rates, showed a shift towards a more hawkish stance on inflation.
This trend means that a larger number of Federal Reserve officials are now inclined to keep monetary policy tight for a longer period, or even raise interest rates if economic conditions warrant it.
Stocks decline after the meeting
Following the decision, US markets came under significant selling pressure, with the Nasdaq Composite falling 1.3% and the S&P 500 dropping 1.2%. The Dow Jones also relinquished its earlier gains, despite reaching a new high during trading. Updated projections from Federal Reserve members showed an increase in the median interest rate forecast for the end of 2026 to 3.8%, compared to 3.4% in the March projections, suggesting the possibility of another rate hike next year.
Markets see a positive side
While the prospect of interest rate hikes typically puts downward pressure on stocks, investors seemed more reassured by the Fed’s continued focus on combating inflation and maintaining economic stability, rather than reacting hastily to short-term fluctuations. Some market participants believe the central bank’s messages reflect greater confidence in the strength of the US economy and its ability to sustain growth even with monetary policy remaining relatively tight.
Futures recover and Asian markets hit new highs
In pre-market trading in the US, Nasdaq futures rose by about 1.3%, while S&P 500 futures climbed by 0.9%.
Dow Jones futures also added about 300 points, indicating that markets were trying to recover from Wednesday’s losses.
Globally, Asian markets continued to set new record highs, with South Korea’s Kospi index rising more than 1% and surpassing 9,000 points for the first time ever. Japan’s Nikkei 225 index also reached new all-time highs, further boosting investor appetite for riskier assets worldwide.
Was the drop exaggerated?
Investors are now watching Thursday’s session to see if the sell-off that followed the Fed meeting was just an overreaction or the start of a broader shift in market direction.
The main question that concerns traders remains: Was the Federal Reserve’s message a warning of impending inflationary risks, or an expression of the central bank’s confidence in the strength of the US economy and the continuation of the current growth cycle? The answer to this question may determine the direction of US stocks during the second half of the year.
